A book by Edward Chancellor< read all 2 reviews
In my short experience as an investor, it was some of the most sage advice I have received. Edward Chancellor book arrives at the same conclusion but provides more foundation to recognize the bubbles of speculation.
Investment bubbles never change. Yet, for the investor or trader caught up in one, they remain difficult to identify. According to modern economic theory, markets are efficient and speculators are rational opportunists intent on maximizing their wealth.
Chancellor, a former investment banker and historian, disagrees. More than fear and greed drives speculators, they motivated by deeper compulsions and aspirations. Speculation, he says, can only be understood within a social context and that its history cannot be a simple description of economic affairs. It is important to understand the behavior and attitudes of politicians, since the laws governing markets are written and enforced by governments.
He traces the origins of speculative fever back to ancient Rome and follows the thread through Holland's tulip mania in the 1630s and London's stockjobbers 70 years later.
The book ends with an insightful analysis of the Junk Bond era here in the United States, the Japanese bubble and the near collapse of Long Term Capital Management. It is a must read for every serious investor.
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Beginning with the "tulipomania" that gripped Holland in the 1630s, Chancellor chronicles the formations and irrational euphoria that can inflate markets, from shares of South Sea stock in England in the 1720s to real estate in Japan in the late 1980s. He characterizes the speculative spirit as one that
loves freedom, detests cant, and abhors restrictions. From the tulip Colleges of the seventeenth century to the Internet investment clubs of the late twentieth century, speculation has established itself as the most demotic of economic activities. Although profoundly secular, speculation is not simply about greed. The essence of speculation remains a Utopian yearning for freedom and equality which counterbalances the drab rationalistic materialism of the modern economic system with its inevitable inequalities of wealth.But it's precisely such inevitability that always seems to win out, when "sharply rising prices followed by sudden panic without cause" bring speculative excess to an abrupt end.
Chancellor makes Devil Take the Hindmost especially ...